When a Global Crisis Becomes a Contract Risk
The ripple effects of the Iran conflict are no longer limited to energy prices or logistics volatility. They are now creating direct contractual pressure on businesses worldwide, including Thai companies involved in imports, exports, manufacturing, and international supply chains.
Rising raw material costs, surging freight rates, product shortages, and trade restrictions caused by sanctions can all directly affect a party’s ability to perform its contractual obligations.
That said, many of these situations may still fall short of force majeure, because performance remains physically possible. The real issue is that the economic burden of performance has increased dramatically.
Many business operators have likely asked themselves: if the contract can still be performed, but costs have risen so sharply that profit disappears—or continuing performance no longer makes commercial sense—what options are available?
One possible answer in international contracting is the concept of hardship.
What Is Hardship?
Hardship refers to a situation where events occurring after the contract is signed fundamentally alter the equilibrium of the contract, making performance under the original terms far more burdensome than could reasonably have been expected at the time of contracting.
Examples include:
- Abnormal spikes in raw material prices
- Severe currency fluctuations increasing costs substantially
- New government regulations imposing major additional costs
- Closure of key shipping routes for an extended period
- Sanctions severely disrupting supply chains
In legal terms, the equilibrium of the contract refers to the balance between the burdens and benefits of both parties as agreed on the date the contract was entered into. In other words, the parties assessed and accepted the relevant risks based on the facts and market conditions existing at that time. Accordingly, such equilibrium exists specifically at the moment the contract is concluded.
It should be noted that Hardship is a different concept from an unfair contract. Whether a contract is economically attractive or unattractive, a good deal or a bad deal, or advantageous to one party over the other, is a matter that the parties negotiated and knowingly accepted at the time of contracting. Hardship, by contrast, concerns situations where the equilibrium originally agreed by the parties has been fundamentally disturbed by a subsequent event meeting the conditions above, rather than a mere later perception that the contract has become unfair.
Hardship addresses situations where performance is still possible, but continuing under the original bargain has become commercially unreasonable or excessively onerous for one party. This differs from force majeure, which generally concerns situations where performance has become genuinely impossible or seriously impeded. In such cases, a party may be excused from liability for non-performance, and obligations may be temporarily suspended. If the event continues beyond an agreed period, termination rights may then arise.
Hardship Under the ICC Hardship Clause (2020)
The ICC Hardship Clause was developed as a model clause for use in international contracts.
Its core approach is that even where costs or burdens increase, the parties are still expected to continue performing the contract unless the affected party can prove that continued performance has become excessively onerous due to an event that:
- could not reasonably have been foreseen at the time of contracting;
- is beyond that party’s reasonable control; and
- could not reasonably have been avoided or overcome, including its consequences.
Where these conditions are met, the affected party may request renegotiation of reasonable alternative terms, and the parties are expected to negotiate within a reasonable time.
If renegotiation fails, the ICC Clause offers three alternative courses of action, which parties should select when negotiating the contract:
Option A
- Allowing the affected party to terminate the contract.
Option B
- Requesting a court or arbitrator to adjust the contract with a view to restore its equilibrium, or terminate it if appropriate.
Option C
- Requesting a court or arbitrator to declare the contract terminated
If parties do not want a third party—such as a judge or arbitrator—to restore its equilibrium, they may prefer Option A or C.
Under Option A, the party invoking hardship may terminate unilaterally, although the other side may later challenge whether that termination was lawful.
Under Option C, either party may request a judicial or arbitral declaration that the contract has come to an end.
Where parties choose a model allowing contract adaptation, it is often sensible for the judge or tribunal to invite both parties to submit proposals for revised terms as a starting point.
Hardship Under the UNIDROIT Principles
The UNIDROIT Principles of International Commercial Contracts recognize hardship in a broadly similar way.
They define hardship as a situation where events fundamentally alter the equilibrium of the contract because:
- the cost of one party’s performance has substantially increased; or
- the value of what a party receives has substantially decreased.
This only applies where all of the following are satisfied:
(a) the events occurred, or became known to the disadvantaged party, after the contract was concluded;
(b) the disadvantaged party could not reasonably have taken the events into account when contracting;
(c) the events are beyond that party’s control; and
(d) the party did not assume the risk of those events, expressly or implicitly.
Even where performance becomes more burdensome, the affected party must continue performing unless hardship is established.
Once hardship arises, the disadvantaged party may request renegotiation without undue delay and must state the grounds relied upon.
Importantly, a request for renegotiation does not by itself entitle the party to suspend performance.
If no agreement is reached within a reasonable time, either party may bring the matter before a court or tribunal.
If hardship is found, the court or tribunal may:
- terminate the contract on a date and terms it determines; or
- adapt the contract in order to restore its equilibrium.
ICC vs UNIDROIT: What Is the Difference?
Although both frameworks recognize hardship, they differ significantly in nature, purpose, and use.
The ICC Hardship Clause is a model clause designed to be inserted directly into contracts. Its strength lies in practical usability. It provides a ready-made structure that parties can tailor — for example, procedures for renegotiation, termination rights, or powers of a tribunal.
For that reason, ICC is often well suited to businesses seeking a practical drafting tool and wanting hardship mechanisms clearly agreed from the outset.
The UNIDROIT Principles, by contrast, are a form of soft law. They are not template contract wording, but a set of internationally recognized legal principles for commercial contracts.
Their strength lies in flexibility. They may be used to interpret contracts, fill contractual gaps, guide tribunals, or even serve as the governing framework where parties so agree.
UNIDROIT may therefore be particularly attractive where parties want a neutral and internationally oriented legal framework, especially when they come from different legal traditions.
Flexibility Comes with Conditions
Even without a hardship clause, parties are always free to renegotiate their contract voluntarily. However, an express hardship clause can make renegotiation more structured by setting out procedures, timelines, interim rights and obligations, and principles for reaching a fair result.
That said, this does not mean hardship clauses should be used in every contract. Hardship is fact-sensitive and inherently complex. Its boundaries are rarely precise, and its effectiveness depends heavily on bargaining power, governing law, and the quality of drafting. Before agreeing to such a clause — particularly from the perspective of a buyer or any party seeking price and timing certainty — the potential downside should be considered carefully.
Advantages of Hardship Clauses
1. Structured renegotiation. They provide an organized process rather than forcing parties into chaotic crisis negotiations.
2. Reduced risk of default or disruption. A workable hardship mechanism may reduce the chance of one party halting supply, suspending work, or abandoning the project.
3. Preservation of long-term relationships. They create space for commercial solutions without immediately escalating into termination or litigation.
4. Greater flexibility in volatile markets. Contracts become more resilient to shocks such as energy costs, exchange rates, sanctions, or supply chain disruption.
5. Relief from unsustainable obligations. Where renegotiation fails, an affected party may have an exit route or seek adjustment rather than being forced to continue under economically irrational terms.
Risks and Points of Caution
1. Hardship is fact-specific. Whether a particular event rises to the level of hardship is inherently fact-specific, including the nature and context of the contract, the characteristics of the industry, and the scope of risks that were reasonably foreseeable at the time of contracting.
2. Definitions can be vague. Terms such as “excessively onerous” or “fundamental alteration of equilibrium” is broad, which means parties will often disagree on whether the threshold has actually been met.
3. Less contractual certainty. Flexibility often comes at the cost of predictability. Neither party can know with certainty when it will be triggered or what the outcome will be.
4. Tactical use in negotiations. Some parties may invoke hardship strategically rather than genuinely.
5. Poor drafting can create disputes. Unclear triggers, procedures, or remedies may generate more disputes than they solve.
6. Buyers may be disadvantaged. Buyers often only need to pay the price, while sellers or contractors perform multiple operational obligations and may have more opportunities to invoke hardship.
7. Outcomes depend on governing law and forum. The same clause may operate very differently depending on applicable law and dispute forum.
Hardship in the Context of Thai Law
Thai law does not expressly recognize hardship in the same way that some jurisdictions do. As a general rule, rising costs, operational difficulty, or a contract becoming economically disadvantageous do not automatically release a party from its obligations. A party therefore cannot rely on hardship alone to demand amendment, reduced obligations, or termination.
For Thai businesses entering international contracts — especially long-term supply, construction, procurement, or cross-border chain arrangements — this makes hardship an important drafting issue. If no mechanism is agreed in advance, the legal options available in a crisis may be limited.
There may also be practical limits if parties expect a Thai court to actively restore the equilibrium of a contract under an ICC or UNIDROIT-style hardship clause. Thai courts generally place strong weight on the bargain agreed by the parties and do not ordinarily adjust the commercial allocation of risk unless a clear statutory basis or exceptional legal ground exists.
Accordingly, where parties genuinely want a decision-maker with power to adjust the contractual equilibrium, international arbitration may in many cases offer greater clarity, flexibility, and predictability than litigation before Thai courts.
Conclusion
A hardship clause is not an escape route from a bad deal. It is a risk-allocation tool for a world that changes faster than many parties anticipate at the time of conclusion of the contract.
The ICC and UNIDROIT frameworks offer useful starting points, particularly for international contracts involving parties from different legal systems. But a hardship clause is only as good as its drafting — it should be tailored to the specific transaction, the governing law, the bargaining dynamics, and the risk profile of the deal. Copying standard language without careful thought can create as many problems as it solves.
For Thai businesses involved in cross-border trade or long-term commercial relationships, hardship should be considered at the contract negotiation stage—not only after the crisis has already begun. In a world defined by volatility, uncertainty, complexity, and ambiguity, a contract that cannot bend risks breaking entirely.
